Financing medical expenses

Jun 1, 2012 by Adam C. Powell, Ph.D.

The best strategy for avoiding medical debt is to always carry a health insurance plan. American health insurance plans are more than insurance – they act as discount cards in addition to reducing exposure to risk. Health insurers negotiate discounts with healthcare providers for their members, causing them to be exposed to far lower costs than people trying to go without insurance. While High Deductible Health Plans provide very little risk sharing for most normal healthcare costs, they enable people to access insurer-negotiated rates and to not be exposed to catastrophic risk.

Not all medical procedures are covered by insurance, and people sometimes do need help covering unanticipated expenses. When this is the case, people should consider the interest rates associated with all available sources of financing, their timeline for repayment, and whether there are any costs associated with originating the loan. One infrequently considered method of financing is the medical credit card. CareCredit, a medical credit card offered by GE Capital, is better than a standard credit card in some situations, but worse in others. Some participating healthcare providers offer CareCredit plans that allow patients to receive care without paying interest, provided that they make their payments, and pay off the balance in full within a set period of time (between 6 and 24 months, depending on the offer). While this is a great deal for people who can do so, the card becomes a far worse choice for people who cannot make their payments or pay off the bill within the time limit. The card reverts to a 26.99% APR, assessed back to the date of purchase, for those who do not comply with the terms of the payment agreement. CareCredit also offers an alternative deal, in which payments may be made over a pre-determined period of between 24 and 60 months at 14.90% APR. If payments are not made according to the terms of the agreement, the account will revert to 26.99% APR. Given these interest rates, in the event of an emergency, people who cannot fulfill the terms of the interest-free CareCredit offer may be better off considering using a credit card. According to Bankrate.com, during the week of April 26th, 2012, the average interest rate on a fixed rate credit card was 13.81% APR and the average interest rate on a variable rate credit card was 14.49%; both lower than the interest rate offered by CareCredit. Of course, these are just averages, and the interest rate individuals will be offered will be in part determined by credit scores.

Ignoring an unpaid medical bill can damage one’s credit much in the same fashion that ignoring any other sort of bill can. Fortunately for patients, there is a government expectation that non-profit hospitals provide some charity care. As a result, hospitals are willing to consider negotiating with people whom are struggling. Hospitals have been known to both reduce bills and offer payment plans to people having difficulty with their medical bills. While hospitals do provide charity, they typically make an attempt to collect their bills first, and mark care as charity after it has turned into bad debt. It is far better to work with them on creating a manageable situation, as not paying will trash a credit score.